Whilst millions of consumers struggle unsuccessfully to make debt repayments, debt collection agencies are enjoying an unprecedented period of boom. Increasing levels of involuntary unemployment and excessive lending by financial institutions are largely behind the rising levels of loan default.
A decade ago figures show that the banks and debt collection agencies aren’t being more lenient with debtors. County Court Judgments (CCJ’s) in England and Wales have risen by 17.4% to 223,519 during the third quarter of 2008. The total interest paid on personal debt in the UK was a £76.2 billion in the last year.
Creditor Harassment and the Role of the Debt Collection Agency Following Loan Default
Once a credit agreement has been defaulted on, the lender will attempt to collect the debt. However, more difficult cases, where the debtor isn’t answering calls or has vanished, are likely to be sold on cheaply to a debt collection agency.
Uncollectable debts are written off against taxes and the debt is sold on to a debt collection agency. The majority of debt collection agencies are buying defaulted accounts for as little as 15% of the debt’s value, but they still attempt to collect the full loan value.
Using a Debt Management Plan to Prevent Creditor Harassment
A debt management plan involves making a payment to an intermediary who will disseminate the proceeds to creditors on a pro rata basis. Whilst a debt management plan is only a voluntary debt solution, creditor harassment from debt collection agencies will normally cease. This is because a debt collection agency is starting to recover some of the money used to buy the debt.
Legally Binding Debt Solutions and Debt Collection Agencies
A debt solution, such as going bankrupt, an Individual Voluntary Arrangement or a Debt Relief Order will prevent creditor harassment from debt collection agencies. Unlike a debt management plan, these are all legally binding debt solutions rendering any sort of creditor harassment illegal.
It is possible for someone to avoid creditors for six years and benefit from a debt write-off. However, it is best to tackle debts with a debt solution to prevent creditor harassment from a debt collection agency. Those that have or can borrow money from a family member may wish to offer debt collection agencies a full and final settlement.
Debt Relief Orders – Pros and Cons
The UK economy is in recession amid COVID-19 pandemic and many people have lost their jobs. Millions are struggling to pay unsecured debts. The Citizens Advice Bureau have reported that about half of it’s clients have no money left over to cover personal debts. Numerous low income families have financial difficulties and urgently seek a debt solution to write-off debt. Does a Debt Relief Order provide the answer?
What is a Debt Relief Order?
A Debt Relief Order is a plausible alternative to an Individual Voluntary Arrangement or going bankrupt. Instead of dealing with the Official Receiver, a debtor will work with an intermediary (a qualified debt advisor) who will help and guide them to a new debt-free life.
It only costs the debtor £100 to commence a Debt Relief Order. This low outlay makes it an affordable debt solution for low income families and provides an opportunity to become completely debt free in as little as 12 months. No creditor harassment can take place during a Debt Relief Order.
Advantages of Debt Relief Orders
- Write-off debt. All personal debt is written-off;
- Short term. A Debt Relief Order is completed after just 12 months;
- Prevents creditor harassment. Any form of creditor harassment is illegal once a Debt Relief Order has been entered;
- No monthly repayments. All Debt Relief Orders have a basic requirement that someone shouldn’t have more than £50 of disposable income. This means that debtors aren’t expected to contribute towards the agreement because they have no spare income available; Simplicity. An intermediary, rather than an Official Receiver, will deal with the case. This means that someone with financial difficulties has someone to consult and take care of the more complex aspects of a Debt Relief Order.
Disadvantages of Debt Relief Orders
- Bad Credit. A Debt Relief Order will result in bad credit being registered at all the major credit reference agencies. This will show on personal credit reports for a period of 6 years. However, many individuals that are struggling with personal debt problems and financial difficulties will already have bad credit;
- Access to credit. Those in a Debt Relief Order will have to inform potential creditors should they wish to borrow more than £500;
- Existing debt solutions. A debt relief order is not suitable for individuals that are undischarged bankrupts, have a Bankruptcy Restriction Order (BRO) or are already in an Individual Voluntary Arrangement;
- Only covers debts up to £15K. Tenants seeking to write-off debt above £15,000 will need to look into an alternative debt solution, such as going bankrupt;
- Unsuitable for home owners. A debtor’s assets must not exceed £300. A home owner with personal debts over £15,000 may wish to consider an alternative debt solution, such as an Individual Voluntary Arrangement or debt management plan;
- Windfall payments. Should a debtor win or inherit money, it is expected that this will form part of the Debt Relief Order;
- Insolvency register. A Debt Relief Order will appear on the publicly available government insolvency register. However, very few people will ever access this as it isn’t common knowledge;
- Once in a 6 year period. A Debt Relief Order can only be entered once in any six year period.
A Debt Relief Order is a perfect debt solution for those living in rented accommodation and have unsecured debts of under £15,000. It allows a person to write-off debt and become free of financial difficulties in just 12 months. However, it will result in a bad credit rating.